(Albuquerque, New Mexico) – The respected business accounting firm Ernst & Young has released a new study of state and local business tax policies among the 50 states.
Among the study’s important findings is the fact that New Mexico’s state and local business taxes were heavier as a percentage of private-sector economic activity – 6.2 percent – than business taxes in all but six other states.
The study also found that the share of overall tax revenue growth in New Mexico that was borne by businesses rose by 70 percent between FY 2002 and FY 2006.
Commenting on the study’s findings, Rio Grande Foundation President Paul Gessing explained that two major factors were likely at play, “Since 2002, New Mexico has seen significant income tax and capital gains tax cuts, thus lowering individuals’ overall tax burden somewhat. Unfortunately, over the same time period, we’ve seen significant increases in the gross receipts tax.”
According to the study, the greatest portion of New Mexico’s business taxes fall under the category “sales taxes on business inputs.” Gessing noted that the Rio Grande Foundation has repeatedly pointed out that, “New Mexico’s gross receipts taxes, unlike the sales taxes levied by most other states, is applied to inputs including services, thus placing a heavier burden on businesses.”
As Gessing asserted, “With some areas of the state taxing gross receipts at nearly 8 percent, businesses will look elsewhere or demand special favors before relocating to New Mexico, thus driving rates higher over the long term. Reforming New Mexico’s gross receipts tax or abandoning it entirely and reverting to a sales tax would greatly reduce the business tax burden, thus boosting the state’s economy.”
The Rio Grande Foundation has long studied and repeatedly called for gross receipts tax reforms (including reverting to a simple sales tax). Our most recent study of the issue, “New Mexico’s Gross Receipts Tax: A Warning to Other States,” is available on our website: http://www.riograndefoundation.org/new/articles/?EC=ReadArticle&ArticleID=126.
The Ernst & Young report can be found online at: http://www.ey.com/Global/download.nsf/US/Total_State_and_Local_Taxes_-_50_State_Estimates_2006/$file/TotalStateLocalTaxes2006.pdf